Cash advances can offer credit card users a smart and convenient way to quickly obtain cash. However, they can turn out to be a nightmare if you don’t fully read the terms and conditions.
Here are a few dangers to be aware of if you are considering taking a cash advance.
1. Fees, fees and more fees
Credit card companies promote cash advances as a convenient option to quickly access cash in emergency situations. But transactions of this sort are often accompanied by a convenience fee. In addition, an ATM fee may also apply when cash is withdrawn from an out-of-network unit.
2. Higher interest rates
Another danger of cash advances is the higher interest rate that applies. The annual percentage rate charged for cash advances is usually higher than — sometimes double — the percentage assessed for purchases. This generates a substantial amount of revenue for credit card companies as many consumers are not aware of the varying APRs and are under the impression that they are treated in the same manner as everyday purchases.
3. No grace period
Unlike most credit card transactions, cash advances do not offer a grace period before interest starts accruing. Therefore, your balance will start to increase immediately after the transaction is processed.
4. Facilitates poor spending habits
Taking cash advances makes it all too easy to develop poor spending habits. For example, if you really want to buy something from a merchant that only accepts cash and you do not have cash available, it may be tempting to whip out the credit card and head to the nearest ATM to make a withdrawal. (Some institutions even allow you to transfer funds from your credit card to your checking account online.) However, doing so without immediately repaying the balance and corresponding fees can quickly dig you into a mountain of debt, especially if done repeatedly.
Because of these hidden dangers associated with cash advances, it is essential to think twice — and look for other options — before using this method to bail you out of an unfavorable financial situation.